Key performance indicators and
eXtensible Business Reporting Language (XBRL) are two tools Edward
Nusbaum believes could significantly help investors better
understand complicated financial reports.

The Grant Thornton US chief executive was one of 17 members on
the US Security and Exchange Commission’s (SEC) advisory committee
on improvements to financial reporting, which issued its final
recommendations recently.

The committee was established in June last year to examine the
US financial reporting system and suggest ways to increase the
usefulness of financial information while reducing the complexity
of the system. Its members included users of financial statements,
former regulators, chief financial officers and Deloitte Global
chief executive James Quigley.

The 25 final recommendations had five underlying themes:
increase the usefulness of information in SEC reports; enhance the
accounting standards-setting process; improve the substantive
design of new accounting standards; delineate authoritative
interpretive guidance; and clarify guidance on financial
restatements and accounting judgments.

Nusbaum said no single recommendation or even the cumulative
effect of 25 recommendations will completely eliminate
complexity.

“Part of the problem of course is that the world is complex.
There are a lot of very complicated business transactions that take
place and when you have complicated derivatives or financial
instruments, the accounting is going to be complicated and there is
nothing we can do about that,” he explained.

“Having said that, when you add up all of these recommendations,
they do make a difference and they do have the cumulative effect of
reducing complexity – making the financial statements easier for
investors to understand and, over the long run, improving the
quality of the financial information.

“For example adding key performance indicators (KPIs) doesn’t
simplify a company’s life, but it does provide useful information
on a consistent basis to investors. It should make it easier for
investors to analyse the performance of a company and not just
financial performance, but the overall development of a company. In
essence, that reduces the complexity of the ability to analyse the
financial results.”

The theme of increasing the usefulness of information in SEC
reports included the recommendation for KPIs, which could take the
form of a short executive summary at the beginning of a company’s
annual report, to describe the most important themes and indicate
where investors could find more detailed information on particular
subjects.

The mandatory use of XBRL was also promoted as a way of
simplifying the delivery of financial information. Nusbaum said
KPIs and XBRL are two recommendations that Grant Thornton will be
particularly active in implementing.

The mid-tier leader said providing guidance on accounting
judgements and getting investors more involved in the
standard-setting process are also important.